Hoffman, Raabe, Maloney, & Young, CPAs — Las Vegas Corporation the business developing software used exclusively multinational corporations Among
Computer Science & ITGeneralAcademic Paper
Las Vegas Corporation is in the business of developing software used exclusively by multinational corporations. Among its assets are innovative soft ware, valuable trademarks, outstanding corporate name recognition, and a large NOL carryover. These assets make Las Vegas a very appealing takeover prospect to the Santa Fe Corporation.
Santa Fe is a little-known corporation that distributes software products to corporate clients. It is the largest business of its kind and is quite profitable. After entering into negotiations, Santa Fe learns that the trademarks of Las Vegas are not legally transferable. With further planning, the combination is expected to take place on June 30 of next year.
The President of Santa Fe, Darla Threestars, has requested your expert advice on two matters. First, Threestars would like to know what type of reorganization would be most effective in acquiring Las Vegas. Second, will the § 381 NOL limitation apply after the reorganization? Third, Santa Fe is subject to the alternative minimum tax (AMT) each year and assumes this situation will continue in the future. Does the § 381 only limit the amount of NOL that can offset regular tax in the first year or does it also apply to the AMT as well? Draft a letter to Darla Threestars explaining your conclusions. Her address is 1235 Pinto Drive, Santa Fe, NM 87505.
SOLUTION
Hoffman, Raabe, Maloney, & Young, CPAs
5191 Natorp Boulevard
Mason, OH 45040
Darla Threestars, President
Santa Fe Corporation
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1235 Pinto Drive
Santa Fe, NM 87505
Dear Ms. Threestars:
Thank you for allowing us to help you with your pending acquisition of Las Vegas Corporation. Our conclusions are based on the following facts. Any changes in these facts may cause our conclusions to be inaccurate. As we understand the facts, Las Vegas develops software used exclusively by multinational corporations, and Santa Fe is a distributor of such products. This would indicate that acquiring Las Vegas is a logical extension of Santa Fe’s business. Las Vegas has outstanding corporate name recognition and valuable trademarks that are not transferable. It also has a large NOL carryover.
The first question is what type of reorganization should be utilized to acquire Las Vegas. Given the factors presented above, we would suggest an acquisitive “Type D” reorganization as the best choice for merging Las Vegas and Santa Fe. In this type of reorganization, the acquiring corporation (Santa Fe) merges into the target corporation (Las Vegas) and Santa Fe ceases to exist. Las Vegas becomes the combined corporation, thus, there is no transfer of the trademarks and the name recognition of Las Vegas is preserved. These benefits are not available with the other acquisitive reorganization. To assure tax-free treatment under §368(a)(1)(D), Santa Fe must transfer substantially all of its assets to Las Vegas for at least 50 percent of the outstanding stock of Las Vegas.
The second issue associated with this acquisition is the ability to benefit from the NOL carryover of Las Vegas. Specifically, the question is whether the §381 NOL limitation applies to the Alternative Minimum Tax (AMT) in the year of acquisition. According to Technical Advice Memorandum 200044003 (11/06/2000), the limitation in § 381(c)(1)(B) applies both to the use of an NOL against regular tax and against the AMT. While § 381(c)(1)(B) does indicate explicitly that it applies to the AMT, the Conference Committee reports suggest any limitations applying for regular tax purposes also apply to the AMT (Conf. Rep. No. 841, 99th Cong., 2d sess. II-283). Therefore, the corporation newly formed by the merger of Santa Fe and Las Vegas will be subject to the §381(c)(1)(B) first-year limitation regardless of whether it is subject to regular tax or the AMT.
If we can be of any further assistance in your acquisition of Las Vegas, please contact a member of our reorganization specialty group.